Home' Australian Resources and Investment : September 2015 Contents 4 • Australian Resources and Investment • VOLUME 9 NUMBER 3
for example. Macquarie did not change
its outperform recommendations on
Independence Group, Sirius Resources
and Western Areas.
Macquarie wrote: 'Earnings cuts
are largely limited to FY16, with our
earnings-per-share estimates for
Independence Group and Western Areas
falling 17 per cent and 39 per cent
respectively, while Panoramic Resources
and Mincor swing back into losses'.
Nickel companies need to provide
'organic catalysts' to justify share price
re-ratings, said Macquarie. 'The cuts
to our base metal price forecasts have
removed the bulk of the downside risk to
our earnings forecasts for FY16, although
we still expect ve to 10 per cent rises
from current spot levels for most base
metals. In the absence of a signi cant
recovery in commodity prices, we look to
stocks with strong organic catalysts to
drive share price outperformance.'
Longer-term, the advent of nickel pig
iron, a lower-grade, cheaper alternative
to pure nickel in stainless-steel
production, is a potential headwind for
Earnings catalysts building
Although their share prices do not
re ect the progress, there is much to
like in how listed nickel companies are
responding to an environment of sharply
lower nickel prices.
The debt-free Western Areas, a
stand-out, is expected to produce
25,500 tonnes of nickel concentrate
this nancial year, and has cash costs
below $2.36 per pound, putting it well
inside the bottom half of the operating
Its acquisition of the Cosmos Nickel
Complex in Western Australia from
Glencore in June, for $24.5 million
in cash, was a good long-term move.
Cosmos has a significant resource
base and comes with substantial
production infrastructure. If all goes
to plan, Western Areas should have a
rising production profile in the next
few years as the nickel price recovers,
and it is showing the market that it
can add to its mine life, at low risk
Thirteen of 16 brokers that follow
the stock have a buy or strong buy
recommendation, and three have a
hold. A$4.69 median share price target,
based on consensus analyst estimates,
compared with a $3.05 share price in
At that price, Macquarie believes that
Western Area's valuation is factoring in a
at forward nickel price of US$6.75 per
pound, using the spot exchange rate. It
has a $4.90 12-month price target.
Sirius Resources also reported better-
than-expected progress in July. It said
that mine development at its agship
Nova project was well ahead of schedule,
and that there was an opportunity to
ramp-up mine production to full capacity
about 12 months sooner than planned.
Mincor, too, is making strong
operational progress. The operator of
two mines in the world-class Kambalda
nickel district of Western Australia
has changed its cost structure and
operational tactics to survive nickel's
In June, the Perth-based company
announced a 46 per cent increase
in its Upper Durkin North Mineral
Resource, and a maiden resource for
its Voyce discovery. It has achieved
strong exploration results in all four
of its growth projects in the Kambalda
district, despite operating under the
constraints of the lower nickel price.
Mincor spiked 10 per cent on the
exploration news, but a 56-cent share
price in July 2015 compares with prices
above $4 in 2007.
Other nickel companies are
struggling with the conditions. Poseidon
Nickel, backed by Fortescue Metal
Group's Andrew Forrest, tumbled in
July after low nickel prices forced it to
delay the restart of its Lake Johnston
mine, acquired late last year with a view
to returning it to production.
Nevertheless, contrarian investors
might nd that current nickel weakness
proves another enduring maxim in the
resource sector -- that the best time to
buy is when everybody else is selling.
Few metals typify that more than nickel
this year, or have better prospects over
the next three to ve years.
Tony Featherstone is a former managing
editor of BRW and Shares magazines.
This column does not imply any stock
recommendations or offer nancial advice.
Readers should do further research of their
own or talk to their adviser before acting on
themes in this article. All prices and analysis
correct at time of print.
Nickel's rise and fall
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